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10 Basic Investing Principles - Principal 4 - Taxes

10 Basic Investing Principles - Principal 4 - Taxes

| April 26, 2023

Topic 4: Taxes

When investing, it's important to understand the tax implications of your investments. There are several different types of taxes that can affect your investments, including capital gains and losses, dividends, and interest income.

Capital gains and losses occur when you sell an investment for more or less than you originally paid for it. If you sell an investment for a profit, you will owe capital gains tax on the gain. If you sell an investment for a loss, you may be able to use the loss to offset other gains and reduce your overall tax liability.

Dividends are payments made by companies to their shareholders. Dividends are typically taxed as ordinary income, but some dividends may qualify for a lower tax rate.

Interest income is income earned on investments such as bonds, CDs, and savings accounts. Interest income is typically taxed as ordinary income.

It's important to work with a financial advisor and a tax professional to develop an investment strategy that minimizes your tax liability while still helping you achieve your financial goals. Some strategies to consider include tax-loss harvesting, investing in tax-efficient funds, and contributing to tax-advantaged retirement accounts such as IRAs and 401(k)s.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor